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IMF Cuts Global Growth Forecast, Says Recovery Depends on "Sufficient Policy Action"; Citi Group's Earnings Fall in Q2; US Stocks Fall; Former Barclays COO Says Diamond Approved Lowballing Libor; European Markets Barely Moved; Outlook Singapore; Euro Creeping Back; Athletes Arriving in London for 2012 Games; London Logistics; G4S Olympic Fiasco; Didier Drogba Strikes Gold in Shanghai

Aired July 16, 2012 - 14:00   ET


MAX FOST, HOST: Cloudy with a risk of thunder. The IMF forecasts weak conditions for Europe.

Following the wishes of the bank. Barclays' ex-COO gives his evidence.

And the athletes start arriving, but London's transport system gets off to a false start.

I'm Max Foster. This is QUEST MEANS BUSINESS.

Hello to you. A fiscal cliff, continental policy drift, and the risk of sudden tremors in trade and capital markets. The IMF says the global economic environment is full of risk. In its updated world economic outlook, it has cut its growth forecast for 2013 to 3.9 percent, and it warns that without bold policy action, things will actually get a lot worse.

The report says measures agreed at the summit of eurozone leaders in June are a step in the right direction, but they're still not enough. It calls for closer banking and fiscal union and a scheme to guarantee bank deposits across the entire block.

Now, the IMF is also worried about the so-called "fiscal cliff" in the United States. That's the automatic spending cuts and tax increases due to start next year. Now, the report warns the combination could stun the US economy and let it slip back into recession. It urges lawmakers to raise America's debt ceiling and stop the automatic cuts from actually kicking in.

And emerging markets won't be able to pick up the slack. The IMF cut growth forecasts for the second -- for this year and next, saying policymakers need to be prepared for declines in trade and erratic capital flows.

Now, Olivier Blanchard is the IMF's chief economist. He joins us now from Washington. Thank you very much, indeed. First of all, let's talk about the emerging markets, because there was a great hope that the emerging markets would be able to stabilize the global economy, but you don't think that's the case anymore.

OLIVIER BLANCHARD, DIRECTOR, IMF RESERARCH DEPARTMENT: Well, they're still going to do fine. There was a worry that the recent decrease in growth could be even worse, and that's not what we're seeing.

We're seeing soft landings after, in many cases, housing bubbles, credit booms. So, they seem to be soft landing, but their soft landing to a growth rate which is less than the growth rate they had, say, in 2000.

So, they're not going to go quite the same way it is before, but rates of 8 percent for China or 6 percent for India, these are still very acceptable growth rates.

FOSTER: And that combined with the eurozone, which is in trouble, but is being compounded by a lack of policy -- decision-making, if I can call it that. Your concerned that the politicians aren't doing enough to support the eurozone which, of course, has a global impact.

BLANCHARD: Yes. Lack of policy decisions is too strong. They are taking decisions and, in the recent past, even more so. But they still have a very tough act to put together. Some of the countries really have to embark on fiscal consolidation, on structural reforms.

The other euro members have to help. All this has to come together. And we see the main risk as not happening, in which case, clearly, yes, the recovery would be in trouble.

FOSTER: And did you combine weaker emerging economies and a lack of direction, if I can call it that, in the eurozone with a load of spending cuts and tax increases due to kick in next year in the US. Actually, that's a huge amount of pressure on the global economy.

BLANCHARD: Yes. I think that the risk -- people who know more about politics than I think that we will not -- the US will not jump a fiscal cliff. But in the case it did, this would be a major, major world event. This would be a fiscal consolidation of 4 percent of GDP. These are enormous numbers.

This would probably lead to negative growth in the US. Negative growth in the US is surely not good news for the world. So, I think that's an event which would be catastrophic. I don't think we'll see it. I think the one we worry more about, because the probability of promise is higher, is really Europe at this point.

FOSTER: Trying to read between the lines of some of your commentary today. Are you endorsing further monetary easing by central banks, like the Fed?

BLANCHARD: Yes, I think in general, anything -- given that there has to be fiscal consolidation, anything the central banks can do and is useful should be done. Now, at some stage, it becomes not obviously whether you should go further.

I think the Fed, the ECB, have gone very far. But if things got worse, for example, for the US, something like QE3 makes a good deal of sense. It's not a magic solution. It's not going to make an enormous difference, but it probably will have some benefits probably worth doing.

FOSTER: It shows a sense of the desperation, though, doesn't it? Because that is a short-term solution, but it's not necessarily great in the long term. But desperate times call for desperate measures.

BLANCHARD: No, I don't think it's a sign of desperation. If I look at the US, it's true the recovery is slow, largely because of fiscal consolidation. But things are healing. The housing market is healing. So, I think it is really just more a way of getting to higher growth later rather than a sign of desperation.

FOSTER: Doesn't seem like there's any room for any kind of economic shock right now. If that came in, the global economy couldn't handle it, could it?

BLANCHARD: No, I don't think it's ready for a major shock. I hope that there is none.

FOSTER: OK, Mr. Blanchard, thank you very much, indeed.

BLANCHARD: Thank you.

FOSTER: Now, onto the markets, and shares in Citi Group are up around 1 percent in New York on better than expected second quarter results. Net income fell 12 percent on the year to $2.9 billion or 95 cents a share.

Now, revenue was down by 10 percent on the year, slightly short of estimates, and the bank said the drop in earnings was due to the ongoing winding down of Citi holdings, created to hold the firm's troubled assets.

Now, CFO John Gerspach also said Citi is cooperating with regulators investigating the libor scandal, but he stressed investors should not assume the bank is in the same position as Barclays. Alison Kosik is at the New York Stock Exchange digesting all of this for us. Allison?

ALISON KOSIK, CNN CORRESPONDENT: Hi, Max. One analyst puts it, Citi Group -- or characterizes Citi Group's earnings this way, saying this is a continuation of the trend that's been happening for Citi for a while, a slow healing of the balance sheet. So, that's as Citi Group is still dealing with bad assets from the credit crunch and struggling to grow.

The losses from those assets grew to $920 million in the second quarter from $661 million the same time a year ago. Still, overall, the bank's results came in better than many had expected. Cost-cutting helped, especially in Citi Group's investment bank, where it cut out $322 million of expenses, allowing the investment bank's net income to rise 18 percent.

So, with Citi Group, it's still working to rebuild it's business, Max, after the financial crisis brought it to the brink of collapse, but it is expanding abroad, focusing on its consumer business. Deposits were up 6 percent during the quarter. And its loan business was actually a bright spot for the bank. Max?

FOSTER: Alison, thank you very much, indeed.

Now, a former Barclays executive says the instruction to rig the rates of libor came from the very top. Jerry del Missier says he spoke directly to his former boss, Bob Diamond, before instructing staff to go ahead and attempt to manipulate libor.

Del Missier, the former chief operating officer at the bank, said Diamond was under pressure from the Bank of England. Del Missier told a committee of UK lawmakers he received what he understood to be an order for Diamond after his conversation with Paul Tucker, deputy governor of the central bank.

In testimony earlier this month, Diamond insisted he did not instruct del Missier to lowball libor. Well, today, del Missier said he is not simply taking the blame for his boss.


ANDY LOVE, BRITISH MEMBER OF PARLIAMENT: Are you acting as the fall guy for Bob Diamond?

JERRY DEL MISSIER, FORMER COO, BARCLAYS: I don't think I'm acting as a fall guy. I -- I've resigned my position from the bank for the good of the bank, and -- I'm not the fall guy for anything.


FOSTER: Most of Europe's main stock markets barely moved this Monday. Mining shares gave up Friday's gains. In London, Anglo American and Rio Tinto, each lost more than 1 percent. In Paris, Peugeot fell nearly 7 percent, its fourth session of sharp losses.

And Spain's IBEX 35 was Europe's only real mover, sank 2 percent after the IMF's latest report said it would miss deficit targets this year and next.

Now, next Onward Singapore. We'll look at how the city-state is living up to that promise of progress.



RICHARD QUEST, CNN INTERNATIONAL (voice-over): Singapore built its economy on exports and foreign investment. Now, as the economy's matured, this city-state in southeast Asia has had to rethink and work hard to diversify. It wants to encourage the growth of new industry, those like biotechnology, tourism, high tech, value-added.

And now, the efforts of government with industry, a part of a proactive policy that defines the place.

TAI HUI, STANDARD CHARTERED: The forward thinking, it's critical. If you look at the ways government drives policy, you think a lot of the Singaporean, how they talk about their own personal career or their lives, there's a certain survivor mentality.


FOSTER: Now, the IMF says newly industrialized Asian countries are among those which will see the biggest reductions in expected growth this year. Countries like Singapore will be hit hard by the broader global slowdown.

The city-state is a global player in exports, finance, and biotechnology, and Richard is in Singapore this week, looking at how it plans to weather the global financial storm.


QUEST (voice-over): This is Clarke Quay, where tourists and locals enjoy the warmth on an island 100 miles north of the equator. In Singapore, they've made the most of what they've got.

It's 47 years since Singapore split from Malaysia and started turning swampland into an economic powerhouse. To discover how they did it, I'm having morning coffee with Liu Thai Ker, the country's former chief planner.

QUEST (on camera): Right, coffee. Thank you.

LIU THAI KER, FORMER CHIEF PLANNER, SINGAPORE: When we started, there wasn't a sense of nationhood. The Chinese looked to China as homeland, Malays to Malaysia, and Indians to India. So, how do we nurture a sense of nationhood? And the government thought that housing -- housing them would be the best way.

QUEST (voice-over): A home for everyone, the cornerstone of a policy where 80 percent of citizens live in public housing.

QUEST (on camera): This is called Golden Clover.

QUEST (voice-over): Here, applicants are applying for their piece of Singapore.

KER: Wen I was the chief planner, I planned for 100 years, just because I knew that if I did not plan for very, very long term, our city might very soon fall into the sea, just run out of land.

QUEST: Planning for the future. It might well be the unofficial motto of Singapore.

Visit the Maritime Experiential Museum and you realize, it's an approach based on a trading history along the silk route of the sea.

NICHOLAS CORDEIRO, MARITIME EXPERIENTIAL MUSEUM: Straight after the departure at the ports of Singapore, they exchange goods. They exchanged the things they needed and wanted, for example, coffee in exchange for spices, ginger in exchange for waxes and so forth.

QUEST (on camera): The Merlion has been the symbol representing Singapore pretty much since the founding of the state. It brings together the strong city tied to the sea. Some also see it as the symbol of the conservative, perhaps boring nature of Singapore. At least, that's the way it used to be.

QUEST (voice-over): This is iFly, the world's largest skydiving wind tunnel, one of the new attractions helping grow the tourist industry here. As the global economy goes up and down and flails around, like me in the wind, tourism has joined high-tech and precision manufacturing as priorities for the government.

HUI: Well, I think what they've done well is to think many steps ahead. And this is not only for the next three years or five years, but sometimes five, ten years.

QUEST: Shaping the economy has meant a government that's never stopped planning, and that's created its own problems.

KER: The first two or three decades of the running of a government, where the government promised something and delivered something to the citizens, develop a habit that whenever you have a problem, to yourself, you look to government for solution. I think this kind of culture needs to be changed.

QUEST (on camera): As Singapore prepares to celebrate its 47th birthday, the economy can be broken down into neat segments. There's the container ships and cranes of world trade, the high-rise towers of banking, insurance, and markets, and now, the ever-growing and important presence of tourism.

It is how the government melds and marries these different sectors together that will be the challenge for the future.

Richard Quest, CNN, Singapore.


FOSTER: From that, tonight's Currency Conundrum has a Singaporean flavor for you. The front of the country's thousand-dollar note features a portrait of President Yusof bin Ishak, Singapore's first president.

What is on the back? A, Singapore's new Parliament House? B, a collection of the country's most beautiful butterflies? Or the entire national anthem. We'll have the answer for you later in the program.

In currency news, poor US retail sales figures are putting the dollar down and allowing the euro to creep back up from a two-year low. The dollar's at a four-week low against the yen.


FOSTER: Now, the 2012 Olympics just 11 days away, and athletes have started arriving here in London. A record 236,900 passengers were expected at Heathrow Airport today, that's 25 percent more than on a normal day.

There have already been a few logistical teething problems, let's say, with bus journeys for some athletes taking three and four hours do to drivers getting lost on the way, would you believe, to the Olympic Park. One American athlete, Kerron Clement, even tweeted his frustration from the bus saying, "We've been lost on the road for four hours. Not a good first impression, London."

All athletes will be traveling into London via specially-designated Olympics Games lanes, which are officially in use from today, so we thought we'd give you a quick insight into the journey from Heathrow Airport, west of London, to the Olympic Park in the east. Slightly faster than Kerron Clement's journey might have been.

And it's not just buses loaded with athletes that will be navigating this particular route. Logistics giant, UPS, has won the contract to make sure that all supplies arrive at Olympic venues on time. That's everything from the horses and hurdles right down to the beds and bean bags. Jim Boulden went to the depot in East London before the deliveries began.


JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): In warehouses dotted around the outskirts of London, logistics giant UPS stored almost every moveable item needed to stage the summer Olympic Games.

These pallets were loaded down with a temporary floors for basketball and gymnastics. Here, the crash mats for pole vault and high jump. And there is so much more.

DEREK IRVING, UPS: We have something like 16,500 athletes' beds, for example, 4,283 whistles, 541 life jackets, 28 boats.

BOULDEN: To move the estimated 30 million items, UPS says it's making 15,000 deliveries to and from the various Olympic venues before and after the Games.

BOULDEN (on camera): So, these are practice hurdles. So, you have to move equipment that isn't just what we see on the day of, but you also have to do the venues where they're practicing.

IRVING: Absolutely. There's a whole number of training venues where we will ship these hurdles into.

BOULDEN (voice-over): While some of these things are obvious, some aren't. I'll tell you in a bit what these small platforms are for.

The logistics firm is also tasked with taking the athletes' 250,000 bags from airports or train stations to the Olympic Village and back after the Games. And during the Games, UPS will hand over valuable equipment to the athletes once they arrive in the venues, whether it's bikes, rifles, or the bows and arrows.

It also has to bring the medals to each venue and take away drug samples each day, not to mention transforming venues during the Games.

IRVING: One particular example, we've got a max of 15 hours to make that transition from one field of play floor to another. Very, very exacting timelines.

BOULDEN: UPS will at least be given 60 hours to remove all the bits from the Opening Ceremony. But even that is not going to be as much of a challenge as taking everything away at the end of the Olympics and the Paralympics.

ALAN WILLIAMS, UPS: It has taken up to 9 months to get into all the venues. We effectively have three months to get out, especially some of the temporary venues, which are being rented by the day by the organizing committee. There's a lot of pressure to get out of those venues within days.

BOULDEN: By the way, Alan Williams is sitting on some of the 2,000 bean bags that have gone into the athletes' rooms. Oh, and these platforms? They are thousands of bed extensions for taller athletes.

BOULDEN (on camera): And in exchange for all this effort, as an official commercial sponsor, UPS is, in effect, paying London 2012 for the privilege and gets bragging rights and the use of the 2012 logo in return.

Jim Boulden, CNN, London.


FOSTER: Well, things are not going well at all for G4S, the company providing security for the Olympics. The company has admitted it was nowhere near -- it has nowhere near enough guards for the event, forcing the army to step in to fill the gap. G4S could now lose $78 million as a result. Its contract is worth, though, $440 million.

Shares dived 8 percent as UBS downgraded the company. They closed more than 8.5 percent lower. Chief executive Nick Buckles is under pressure -- increasing pressure to step down, now. He'll be quizzed by British MPs in the House of Commons Home Affairs Committee tomorrow. We'll bring you details of that.

Now, to China, where former Chelsea football star Didier Drogba is settling into his new home, Shanghai. The star striker touched down at the weekend, ready to make his debut with the new team, and as Stan Grant reports, he insists he's not there for the money.


STAN GRANT, CNN SENIOR INTERNATIONAL CORRESPONDENT: Didier! Hi, Stan Grant from CNN. Welcome to -- welcome to China!


GRANT: Are you looking forward to playing here?

DROGBA: Yes. Have a good day.

GRANT: Didier Drogba has now arrived here. Of course, the real question is, what is he being paid? A lot of the speculation says $300,000 US a week.

UNIDENTIFIED MALE: Now, let's warmly welcome Didier Drogba!

GRANT (voice-over): Oh, yes, it takes a lot to lure a name like Didier Drogba. But the Ivory Coast star insists the big bucks are not his motivation.

DROGBA: The money's not really what is the most important thing, because everybody knows that I give a lot of my money to my foundation. On my sponsors' deal, most of them, I give them to my foundation.

GRANT: His foundation assists African education and health and has him hailed by "Time" magazine as one of the world's 100 most influential people. But it is on the field where he is best-known. With football giant Chelsea, Drogba has won three Premier League titles, four FA Cup grounds, and scored the winning goal in this year's UEFA Champions League.

So, why come to China?

DROGBA: For me, it was also a big challenge, because it could have been easy for me to stay in Europe and go to another team, another big team. But I want to achieve this challenge, so that's why I decided to come here.

GRANT: There are cultural and language barriers.

DROGBA: Ni hao.


GRANT: "Hello" is all the Chinese Drogba knows, but his reputation speaks for him. He arrived in Shanghai to a crush of media and eager fans. Drogba's signing to Shanghai Shenhua presents China as an emerging sporting superpower, where money talks.

He Hongguang coaches kids at a grassroots level. He says China football can't simply buy credibility. "I think Chinese football is a bit too eager to achieve quick success and get instant benefits," he says. "For one thing, football is not so popular in China, like in some of our neighboring countries, Korea and Japan.


GRANT: And even Didier Drogba has some way to go to win over the next generation of fans.

UNIDENTIFIED CHILD (through translator): I'm a fan of Pele's.

GRANT: A few titles for Shanghai, and they will all be Didier Drogba's name.

Stan Grant, CNN, Shanghai.


FOSTER: Well, next, skipping the shipping lanes. Saudi Arabia and the UAE skirt around the strategic Straits of Hormuz.


FOSTER: Welcome back, I'm Max Foster, these are the main headlines this hour.

Syrian opposition groups say fierce fighting has broken out in Damascus for the second straight day. This video posted online appears to show a car on fire in the capital's Midan neighborhood. We're also seeing internet images of tanks rolling through the suburbs of Aleppo. Activists say 26 people have been killed today nationwide.

The UN and Arab League's envoy for Syria has been meeting Russian leaders in Moscow. Kofi Annan is trying to break the country -- break the Security Council's diplomatic deadlock over Syria, but ahead of today's talks, Russia's foreign minister accused the West of using blackmail to garner support for a draft resolution on Syria that Russia opposes.

The British government is facing a last-minute Olympic security glitch even as the first athletes began arriving. Officials are calling in an extra 3500 troops after a security contractor said it couldn't deliver all the staff it promised. The contractor says it stands to lose up $77 million.

United Arab Emirates officials say one Indian national has been killed and three others wounded after a US navy shop fired on the boat in the Persian Gulf. It happened near the port of Jebel Ali in Dubai. The navy says sailors in the US -- USNS Rappahannock gave a verbal warning that the boat was too close and fired a warning shot before resorting to lethal force.

The International Monetary Fund has warned political inaction could derail the global recovery. Its latest economic outlook says the U.S. must raise the debt ceiling to avoid automatic spending cuts. It says European leaders should further integrate the bloc's banking system and guarantee bank deposits.


FOSTER: Saudi Arabia and the UAE have opened new pipelines that bypass the Strait of Hormuz. Iran has repeatedly threatened to close the vital route. It carries around a third of the world's seaborne oil trade. I asked John Defterios earlier how important the new pipeline is to the United Arab Emirates.


JOHN DEFTERIOS, CNN CORRESPONDENT: Especially now it's of importance, Max, because the sanctions that went in place against Iran, the European Union sanctions, went into place July 1st. Some two weeks later on the 15th of July, starting the work week here on the Sunday, they unveiled this gigantic pipeline. Let's take a look at what we're talking about, you know, why it is so strategically important.

It's going from the Habshan oil field and going 400 kilometers directly to Fujairah. Fujairah is one of the seven emirates that makes up the UAE. In previous days, this would go to the port in Abu Dhabi, past Dubai and then through the Straits of Hormuz and then out to the Gulf of Oman and then into the Indian Ocean.

So this bypasses all that volatility and uncertainty in the Straits of Hormuz. Iran has threatened off and on for the past six months that it may close that vital shipping lane and, in fact, uttered the same over the weekend as they were unveiling this pipeline. This is a very large project, though, not a cheap one, Max, at $4.2 billion.

And it's a little bit behind schedule because of the Chinese contractor that put it in place. But it is in place now. It can carry up to 1.8 million barrels a day, they hope, by December and the country's producing just under 3 million barrels a day. So significant carriage once it's in place.

FOSTER: Yes, significant. And UAE is not on its own on this one. Saudi Arabia has offered (ph) its own plan, right?

DEFTERIOS: Yes, in fact, the world's largest oil company in terms of daily production, Saudi Aramco has built a pipeline that goes from the eastern province, where all the oil sits in Saudi Arabia, going straight across the country to the west, to the Red Sea port of Yanbu.

What's also very interesting about that connection with the pipeline to Yanbu is that back in January, January 15th, Saudi Aramco along with Sinopec, the big Chinese producers, signed a joint venture after $8.5 billion investment, to produce 400,000 barrels a day.

So if you look on the map here, you have this project in the UAE, moving around the Straits of Hormuz, that project going from the eastern province into the Red Sea, avoiding the Straits of Hormuz. The Straits of Hormuz is handling about 17 million barrels a day of exports.

And right now from the Gulf region alone, Max, we have 6.5 million barrels a day, avoiding the Straits of Hormuz, and that number's going to go up with the UAE project and the Saudi Arabian project coming online. There's also other projects being looked at in -- for example, in northern Iraq, to avoid the straits as well. So significant.

They take the threat of blocking the Straits of Hormuz seriously, but more importantly, building alternatives so it doesn't become part of the equation. You have to remember, they are neighbors here with Iran and they don't want to stoke any sort of tensions. So if you have a permanent pipeline in place, it avoids the conversation altogether.


FOSTER: Next, something completely different. We're taking a look at this little thing, the innovation of city cycling is taking pedal power (inaudible).





FOSTER (voice-over): The answer to our "Currency Conundrum" now, what is on the back of Singapore's $1,000 note? Well, the answer is C, the entire lyrics of "Majulah Singapura," Singapore's national anthem. It's written in microtext as a security feature of the note.


FOSTER: Now in this week's "Make, Create, Innovate," it's not about being the biggest or the fastest or the most high-tech. This is the example of how slow and steady can win the race. Now bicycles have come a very long way from these humble beginnings.

Do you believe it? This is an example of the earliest bike known as the Walking Expedition, pictured here, in 1819. You'll notice it has no pedals. That didn't last long, though. That progressed to the penny farthing, invented in the 1870s. And by the 1960s, we had arrived at the BMX.

Nowadays a global bicycle production is about twice that of cars each year according to the Earth Policy Institute, and the industry is continuing to innovate. Take this: the Brompton bike, very basic bell, but it works, and that's the point, really.

The Brompton can be folded up so you can easily carry it with you on the train or even on the bus, 27,000 of them are hand-built every year. Each one takes six hours to make and to test. Now each one costs more than $1,300 . That's the price. But innovation and this is how they're made.



WILL BUTLER-ADAMS, MANAGING DIRECTOR, BROMPTON BICYCLE: To look at, they're a bit counterintuitive. You see this thing with little wheels and bits sticking out and you think, well, (inaudible) that going to work. But actually, when you get them, they do exactly what you want. That's sort of like unconscious little buckets of transport.

There are not many products that have a massive impact on somebody. You use it all the time. You see parts of the city wouldn't normally see. Makes you smile, keeps you fit. It sounds corny, but it does change people's lives.

We use technology that's been around for 150 years, and we'll also use technology that's very, very cutting-edge and it is really, really, really new.

ABDUL EL SAIDI, BRAZING SUPERVISOR, BROMPTON BICYCLE: Brazing is slightly different welding. We use like 600 to 700 degree to melt the braze to heat the metal. And you get more flexibility in brazing than welding.

BUTLER-ADAMS: Everyone that touches a bike -- and this is brazed -- each brazier puts his initial. And here we've got a P, which tells us the brazier did this part of the frame, and I've got to say, when we were a smaller company, I knew every little mark. It's not just the frame we make. The derailleur mechanism we make, the braking levers we make. And we make them because they matter.


BUTLER-ADAMS: The brakes have been a bit (inaudible).

I joined Brompton 10 years ago. I was blown away, really, that it was even possible that something like this could exist. It was 1940s manufacturing. I'd worked from this real cutting-edge, super-clean factory, and this was iron presses and bucket loads of stock and real turn- of-the-century stuff.

And I thought, my God, I didn't think this stuff existed. But it did. It couldn't make enough product. And it was making a profit.


BUTLER-ADAMS: The power of our bike is not centered just on work (ph). Gives you freedom and that is something that is run through your soul and makes you feel good.


FOSTER: Cycling is probably a good thing to use in London at the moment, because the chance (inaudible) certainly suffering because of the Olympics. The weather's not looking great, either, is it, Tom?

TOM SATER, AMS METEOROLOGIST: No, but dare I say, there may be a change in the weather pattern. You know, most of the U.K. has been stuck in this pattern, where one storm system after another has been moving through and it's been because we've had this low pressure trough.

Well, the good news is we're starting to see that trough slide eastward and we're going to get a little bit of a break. Now it may only be for a few days, but it could be a sign of things to come, where maybe the overall pattern will start to change across Europe.

Let's talk about what we've been looking at. Get ready for a warm-up in Spain. We'll have more on that in a minute -- and a nice cooldown in parts of maybe Greece. But this area of low pressure here, this was a real troublemaker over the weekend. It moved south of the U.K., moved across the Baltic Sea. It moved up and it dropped a lot of wind, really uprooting a lot of trees.

We had reports like this on Saturday, where we had winds 47 kilometers per hour in parts of Germany, 50 in France. Look at Frankfurt, 61. I know the cyclists, they're due for a day of rest in the Tour de France tomorrow. But over the weekend, as they made their way to the coast of the Mediterranean, they were battling so not only the hills, but some pretty strong winds as well.

But I want to point out this thunderstorm up here in northern Poland. This is what we call a bow echo, signature on radar, strong winds. I put this in a motion a little bit more, and you see this little supercell thunderstorm. This is the one that dropped an unusual tornado in not just one location but three.

And we get in a little bit closer, you're going to see the three sites all in line here. It was a forest area; we had a fatality here near a lake. And this is a community of Smootna (ph). And in fact, for the most part, there was some devastation in some cases, one fatality, that's amazing. But here's some video. And again, something they don't see very often is the destructive winds.

Now many reports of straight-line winds were across Europe as we mentioned. But this actual -- these were confirmed tornadoes, a state on the ground 10 to even 20 kilometers, as wide as 300 meters. So the devastation, there are a lot of cleanup crews.

And then what we find, really, as we come back to the graphics, the following day into Sunday, the rough weather really moved into parts, as you see here in Romania, 3-centimeter diameter hail, but it was the winds in Bacau. In fact, 157 kilometers per hour, numerous roots pulled up, trees uprooted, damage to homes.

Now we're watching the heavy rain move across the Netherlands, in the northern parts of Germany. This is your threat for severe weather as we get into Tuesday, again, parts of Romania into -- across Ukraine into Russia, all due to this severe weather and that cold front as it marches east. But look at the warm-up.

Average high in Madrid is 32; get ready for 37-38 in Athens. You've been dealing with upper 30s; you may see only 31 tomorrow. So a brief break from the heat there. But hopefully we'll able to see a change in the weather pattern. Back to you. That would be nice.

FOSTER: We hope so. Thank you very much, Tom.

Now, it's a major price cut for Nokia's top-end phone. We'll look at what's driving the discount in just a moment.


FOSTER: Three months after Nokia launched its newest smartphone, it's half the price of a handset in the United States. The Lumia 900, which uses the Windows phone operating system from Microsoft will now cost just $49 on a two-year contract.

Nokia had hoped the handset would help it break back into the U.S. smartphone market, but it had a major setback when Microsoft unveiled a new operating system, Windows 8, that the Lumia 900 won't be able to run.

Now Nokia shares have been on a long downward spiral. So just adding to that, falling 60 percent in the last year alone. Shelly Palmer is host of "Live Digital with Shelly Palmer." He joins us from New York.

An absolute disaster for what was the great hope, wasn't it, the Lumia?


SHELLY PALMER, HOST, "LIVE DIGITAL WITH SHELLY PALMER": They really wanted this to work. Microsoft wrote these guys a check for $1 billion to get them in the business and they made the Lumia 900, which, by the way, isn't a bad phone. But no one seemed to care. And it was running Windows 7.5, an operating system that looks a lot like Windows 8. The only problem is it's not Windows 8.

And so when they bring out the Windows 8 operating system now, the phones are not backward compatible. What they have is basically paperweights, and they're trying to dump them out as quickly as humanly possible because certainly, if they don't get out of this inventory before the Windows 8 phones come out, they will never sell another one.

It's kind of unfortunate.

FOSTER: Surely someone in Microsoft is in trouble as well for, you know, if they had Windows 8 on this phone, then it would be in a great position, wouldn't it? Microsoft would be in a good position and so would Lumia.

PALMER: It would absolutely be awesome. The only problem is it didn't go that way. Now I don't know why this is possible, but it seems to be that Microsoft is run more like a bureaucracy and a government than a company, and Nokia might be suffering from the same thing. These guys can't seem to get out of their own way.

And so we've had this terrible situation brewing and now it's just come to a head. The stock's taken a dive. And you know what? Nokia's going to have a little sort of moment now because they either get this right or they don't. No one has tolerance for this. The competition in the marketplace is extraordinary, and Nokia is really, really, really fallen behind.

FOSTER: And going for a budget phone (inaudible) might be a good solution, because they're not all that bad, are they, these phones? But I'm reading it, there's some -- we can't get the official figures, but we think something like 330,000 Lumia phones, according to various bits of research, have been sold in the U.S. And that's nothing, is it? They're sort of a rare species, the Lumia owners.

PALMER: One of the things that was really interesting about Windows 7.5 and why you might have wanted the operating system, and yes, you're right; it's a relatively decent phone. One of the reasons you might have wanted the operating system is that it integrates very well with Microsoft Office Suite. It's pretty good with Xbox, which is kind of nice, and all of the Microsoft Suite tools.

But of course, the fact that the phone really is never going to be anything more than it is, and it's literally limited lifespan, at $49, that's one thing . But that's not the price. The price with the subsidized contract, with AT&T or T-Mobile.

And so you're going to be signing up for two years for a phone that literally is behind the curve the minute you buy it. And it can never be upgraded. It's a pretty unfortunate situation.

FOSTER: In their defense, they say that a price cut isn't unusual at this point in the life cycle of a smartphone. And they do point out that Samsung did cut the price of the Galaxy 2, wasn't it, the S2, at a certain point in the life cycle as well. So is that a defense?

PALMER: Yes. And it's the only thing they can possibly say. The problem isn't is this a practice that happens in the phone business. It is a practice that happens in the phone business. The problem is the optics. You have Windows 7.5 not upward compatible with Windows 8 or 8 not being backward compatible with 7.5.

You've got a piece of hardware that literally is not going to be up to snuff, and you know you're buying something that's behind the curve. Now you know what? You're 100 percent right. This phone actually is a really nice phone, and it does exactly what it's supposed to do. You can do email; you can browse the Web.

It's a wonderful device, it really is. But it's also limited in its life. So it's not about whether it's a good idea or a bad idea. It's the perception or the optics that are going to hurt these guys, not the reality. The reality is it's not a bad phone. The optics are horrifying.

FOSTER: Interesting point, though, to sort of mark a -- as a marker, really, in tech history, because this was the dominant phone maker in the world, wasn't it, Nokia, hugely successful. So that heritage is there, but it's not going to last.

PALMER: I don't think that you can even look back and say where they are and where they were. They were the largest phone manufacturer in the world. They did a fine job for a lot of years being the most, you know, ubiquitous phone you could find, certainly overseas. In the United States, Nokia never really was the biggest of all players.

Apple came in and really did a job on them, HTC, Samsung, they have an unbelievable of competition domestically and worldwide. And you know what, it's not the first time this has happened. Sony owned the personal music business; Apple came in and took that away from them.

There's plenty of historical precedent where a big incumbent organization gets a little arrogant, sits on its laurels, doesn't really listen to the marketplace and loses a magnificent amount of market share. And that has certainly happened here.

FOSTER: That's been a fascinating story, whatever way you look at it. Shelly, thank you very much indeed for joining us as ever.

Now Malaysia Airlines has won the 2012 Skytrax World Airline Award for best cabin crew. The award was based on feedback from 18 million air passengers. Of course, some of those, the cabin crew caring for are too young to fill in their survey.

Well, Malaysia Airlines' new A380 flights families with children are automatically assigned to a lower deck family zone. Only when that's full will you see them in the more business-friendly upper deck. Our Ayesha Durgahee saw it all in action.


AYESHA DURGAHEE, CNN CORRESPONDENT (voice-over): The landscape in London Heathrow is changing, with the towering tailspin and imposing wingspan of the Airbus A380, now a regular flight at the airport. And Malaysia Airlines is the latest to fly the super jumbo.


DURGAHEE (voice-over): The inaugural flight from London to Kuala Lumpur was the perfect opportunity to check out its so-called family zone in the lower deck and business traveler upper deck.


DURGAHEE (voice-over): Once in the air, it's time to have a look where everyone's seated. The upper deck has 66 business class seats with 70 economy seats towards the rear. Down in the family zone, children were sleeping, watching movies and playing in the only open area by the toilets.

UNIDENTIFIED MALE: (Inaudible) concept sounds like it's (inaudible) business travelers, not family travelers. But we haven't had bad experiences, you know. There are people who don't like (inaudible) but we haven't run into them.

UNIDENTIFIED MALE: I guess you could give them a special playroom, soundproof, a small (inaudible) that's soundproof.

UNIDENTIFIED FEMALE: We've all been (inaudible) and most of us have reared babies and brought them on holiday. Not that I could afford business (inaudible) when mine were tiny.

DURGAHEE (voice-over): Upstairs in business class, so far so good, not a baby in sight. Until.


DURGAHEE (voice-over): Further along the cabin, a row of baby business travelers.

TOM OTLEY, "BUSINESS TRAVELER" MAGAZINE: I (inaudible) baby-free business class, but at the same time it's something that a lot of business travelers would pay for. If you're paying a lot of money for an expensive business class ticket and you're paying for a flat bed so that you can go to sleep, having a baby next to you probably isn't what most business travelers want.

DURGAHEE: It's not at all what I would prefer. A noisy baby or a noisy (inaudible).

DURGAHEE (voice-over): But for some leisure travelers in business class, it's not the babies that are a problem.

UNIDENTIFIED FEMALE: I think once you consider that how many mobile phones (inaudible) being used (inaudible) trying to go to sleep. (Inaudible) disturbing. Today it's been great. There haven't been many, but in some business class sections, you can be quite overwhelmed.

DURGAHEE (voice-over): As long as there are passengers willing to pay for their children to also turn left and sit in business class, uncertainty about how much you can sleep and work during a flight will remain. The only place that's guaranteed to be baby-free is right at the front of the plane -- Ayesha Durgahee, CNN, London.


FOSTER: Always want to bring out strong opinions amongst business travelers. We'll be back after the break with a look at the main market movements today.




FOSTER: Recap of the main stock markets, few now, economic worries, limited gains in Europe and the U.S. this Monday. In Paris, Peugeot (ph) fell nearly 7 percent, its fourth session of sharp losses. Last week it announced plans to lay off 6,500 jobs.

Chieforess (ph) lost more than 81/2 percent in London, otherwise Spain's IBEX 35 was Europe's only real mover. It sank 2 percent after the IMF's latest report said it would miss deficit targets this year and next.

Well, this week we have our eye on Kazakhstan, a country using its position on the ancient silk roads to be a player in the Muslim global economy. And as our own Fred Pleitgen tells us, that starts with attracting investment.


FRED PLEITGEN, CNN CORRESPONDENT (voice-over): Kazakhstan has embarked on a national effort to lure more foreign capital and knowledge into the country. Many of the new flashy buildings in the capital of Astana were built and are operated by outside companies. As the government tries to diversify an economy that's almost totally dependent on revenues for mineral exploitation.



FOSTER (voice-over): Well, from America's General Electric to the continent's Eurocopter (ph), see for yourself how change is happening. That is "Eye on Kazakhstan," coming up in just about an hour on "CONNECT THE WORLD."

That is QUEST MEANS BUSINESS. Thank you so much for watching. I'm Max Foster in London.


FOSTER: Syrian opposition groups say fierce fighting has broken out in Damascus for the second straight day. This video posted online appears to show a car on fire in the capital's Medan (ph) neighborhood. We're also seeing Internet images of tanks rolling through the suburbs of Aleppo. Activists say 26 people have been killed today nationwide.

The U.N. and Arab League's envoy for Syria, Kofi Annan, has been meeting Russian leaders in Moscow to try to break the diplomatic deadlock over Syria. Ahead of today's talks, Russia's foreign minister accused the West of using blackmail to garner support for a draft resolution on Syria that Russia opposes.

United Arab Emirates officials say one Indian national has been killed and three others wounded after a U.S. Navy ship fired on their boat in the Persian Gulf. It happened near the port of Jebel Ali in Dubai. The Navy says sailors on the U.S.N.S. Rappahannock gave a verbal warning that the boat was too close and fired a warning shot before resorting to lethal force.

An Egyptian prosecutor has ordered former President Hosni Mubarak back to prison to a prison hospital. A spokesman for the general prosecutor says doctors report that Mubarak is well enough to return. Mubarak was moved to a military hospital last month when his health worsened.

Those are the main headlines. "AMANPOUR" is next.